Italian bond markets and bank stocks are getting battered following remarks by Deputy PM Luigi Di Maio warning that the Italian government is ready to repeat the tough tactics it used to win concessions from the European Union on migration in the forthcoming battle over the budget.

“We want to discuss these reforms with the European Union to obtain the margin for maneuver that will allow us to implement those measures” Di Maio said.

“That means doing the same as we did on immigration.”

The reaction was instant with BTP yields rising and prices dropping.

2Y BTP prices (the most frequently bought in Italy's buybacks) are sliding...

And 10Y Yields are jumping...

Just when you thought it was all safe again. Italy’s populist coalition wants enough flexibility to introduce a flat tax and a citizen’s income in next year’s budget without running foul of EU budget restrictions...

“It is possible to introduce both this measure and a flat tax and to respect European Union deficit limits, because this is a structural reform for Italy,” Di Maio said. “The European Union must listen to us in this phase when we want to protect citizens facing a social emergency.”

How flexible Brussels will be, we will have to see - we would expect the 'compromise' to be measured in "number of migrants."